Good morning, ladies and gentlemen, and welcome to the C.H. Robinson third quarter 2013 conference call. At this time, all participants are in a listen-only mode. Following today's presentation, Tim Gagnon will facilitate a review of previously submitted questions, and if time allows, I will provide instructions for a live question and answer session. If anyone needs assistance at any time during the conference, please press the star followed by the zero. As a reminder, this conference is being recorded Wednesday, November 6, 2013. I would like to turn the conference over to Tim Gagnon, the Director of Investor Relations.
Thank you, Luke, good morning. On our call today will be John Wiehoff, Chief Executive Officer, and Chad Lindbloom, our Chief Financial Officer. John and Chad will provide some prepared comments on the highlights of our third quarter, and we'll follow that with a response to pre-submitted questions that we've received after our earnings release yesterday afternoon. Please note that there are presentation slides that accompany our call to facilitate our discussion. The slides can be accessed in the investor relations section of our website, which is located at chrobinson.com. John and Chad will be referring to these slides in their prepared comments. I'd like to remind you that comments that made by John, Chad, or others representing C.H. Robinson may contain forward-looking statements which are subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations.
Before I turn it over to John, I'd like to mention that similar to our quarter one and quarter two earnings releases, we have provided pro forma financial measures for net revenue and income from operations to provide meaningful insight and an alternative perspective of our results of operations. We believe that these pro forma financial measures reflect an additional way of analyzing aspects of our ongoing operations that, when viewed with our actual results, provides a more complete understanding of the factors and trends affecting our business. A reconciliation of actual results to pro forma numbers is provided in appendix A, B, and C at the end of our slide deck. With that, I'll turn it over to John to begin his prepared comments on slide three with a review of our Q3 2013 results.
Okay. Thank you, Tim, thanks to everybody taking time to listen to our call this morning. If you look on that slide three with the Q3 2013 results, just highlighting our top-line enterprise metrics that we always refer to. Total revenues were up 15.1% to $3.3 billion. Total net revenues grew at 7.1%. Income from operations decreased 5.8%, and earnings per share was down 4.2% to $0.69 per share. The total revenue of the company consisted of the revenue growth consisted of approximately half acquired revenues and half organic growth from new business. The net revenue margin compression has been a significant topic that obviously was a challenge for us again in the quarter, and we'll be speaking to that across the various service lines. Another statement that we make upfront is that we continue to invest in the business and have confidence in our strategy.
There's quite a bit of messages in here, one of the things that we hope you understand and take away from this call is that we do have very strong disciplines around how and when we grow our business and how we add people and make the investments to those networks, we continue to feel good about the choices we're making, our productivity, and our profitability. Again, I'll walk you through more of that as the comments progress. Lastly, we reference our accelerated share repurchase activity. One of our initiatives is to use our balance sheet, we've disclosed in the past our accelerated share repurchase activity. Because that happened later in the quarter and because of some upfront costs, there was no meaningful impact from that transaction in the third quarter.
Chad will cover it in more detail, we do expect some impact from that in future quarters. Turning to page four, Tim mentioned the fact that we share pro forma information. Last year, if you recall, we had the material transactions of acquiring Phoenix International and selling T-Chek, primarily because we began immediately integrating Phoenix so that it is no longer a separate entity or distinguishable from our legacy global forwarding business. The only real meaningful way to look at pro forma activity is to adjust the 2012 activity to remove T-Chek from the entire year and to add the historical numbers for Phoenix into 2012. That's what slide four is doing for the third quarter of 2013.
What slide four and those pro forma analytics would show you is that total revenues were up 7.6%, sort of confirming the comment I made earlier about half of the revenues being from organic growth. Net revenue was essentially flat. As you see, the cost increases, the primary driver, from a total spend standpoint, is the 3.9% increase in personnel expenses. Personnel obviously continues to make up the majority of our cost structure, it's the additional employees and the additional personnel expenses that are in excess of the flat net revenues for the quarter. If you look down on the bottom, and look at the percent of net revenue for the quarter, it's 38.1%. You see the reconciliation to last year, of being around 41.2%.
While that decline in percent of net operating income as a percent of net revenue is laid out here If you sneak down on the bottom of the page for the first three quarters of this year, that operating income as a percent of net revenue is 37%, 38.6%, and this quarter, 38.1%. For those of you who have followed Robinson and understand our model and understand our business, we do have a number of productivity metrics and return metrics of how we invest, price, analyze our various services, and how we manage the business. We have always stated, still believe today, that that metric is our primary productivity metric.
If you think in a service business about the margins that you can earn and the activities that you can conduct in the marketplace, primarily deploying people and technology to create value and to generate earnings for the corporation. While there are mixed issues and different service line ratios that we monitor internally, overall, from an enterprise standpoint, we continue to feel pretty good about that operating income as a % of net revenue. We also continue to believe that that 38.1% represents a meaningful difference and improvement or greater performance from anybody else in the industry that we're aware of. I know a lot of the questions that we've received throughout the quarter, and some of them around our third quarter results, continue to ask about our decision to invest in people and why are we adding heads when we're not growing our earnings.
Hopefully, as you listen through the comments and understand the various components of our business, you'll understand that we still believe very much and very strongly in the productivity levels of our business, the high returns of our business, we're going to continue to make those investments so that in other parts of the cycle, we'll be able to grow our earnings more aggressively and create more shareholder value. Turning to page five, slide five, talking about our transportation results. Transportation revenues for the quarter were up 17.8%. Net revenue margin decreased to 14.9% for the total transportation business. If you look at the 10-year chart that we've been showing for the last couple of years, down on the bottom, it shows the comparisons sequentially and year-over-year, obviously highlighting the fact that 14.9% does represent the low end of the range for that period of time.
Margin compression does continue to be a significant challenge for us. As I've said many times, driven by a different attitude by shippers, a different approach towards supply chain, and a more competitive marketplace. That 14.9% for the quarter and the decline over the year, as it says on the bottom, was slightly greater for our truckload services, particularly in North America, as the mix for international air and ocean and the ocean margins in particular for global forwarding improved the margins and the deterioration in truckload would be offset slightly by the mix and the improvement in the ocean margins. Moving to slide six, talking specifically about those truckload margins. Net revenues for the quarter decreased 1.3%, with volume increasing 13%. Volume in North America for truckload increased 9%.
We've looked at and tried to analyze the various ways that we can talk about our truckload margins and try to give insight into what we see is happening in the industry and what we see happening in our business, we've kind of settled in that we think the most relevant metrics are highlighting what we're seeing in our overall cost of hire versus how we are able to or unable to pass those costs through to our customers. What we've shared for the third quarter of 2013, that overall, we had a 4% increase in cost per mile in our cost of hire for the quarter. In addition, the increase in the truckload rate per mile to our customers was about 2%.
We know that across the industry, a 2% increase is probably more normal or more typical to what a lot of truckload carriers or other providers have experienced. We believe our customer pricing continues to reflect the market conditions and reflect market-based pricing that we're able to pass along to our customers. The 4% increase in our cost of hire, we've studied that and believe there are a number of factors influencing it. Maybe first and foremost is the fact that we did see a more meaningful increase in our cost of hire on our longer length-of-haul shipments.
Because we subcontract all of our services, we don't know the exact cost structure or why the carriers chose to price to us the way they did, but it would be very logical that on those longer length of hauls, that the Hours of Service requirements and the cost structure for those carriers that provide those services increased more significantly, resulting in more aggressive cost increases for us on our longer length of haul, which contributed to more meaningful margin compression for truckload during the quarter.
We also know that as shippers look at their supply chains more aggressively, that for many of them and for our business, the average length of haul continues to shrink, so that as we see this continued lessening in the average length of haul in our truckload activity, a much greater proportion of our 13% volume growth did come with shorter lengths of haul, which also impact the margin and the rate compression. Those are the comments that we think are most relevant to help you understand what we're experiencing in our business and how we're responding to it. We have always highlighted the idea or the notion that the increase in the cost of hire and our timing and our ability to pass those on to the shippers has always varied.
We've talked a lot about our longer-term Customer commitments and how in a balanced market over the last three years, that our customer relationships have generally trended towards longer-term commitments and a greater percentage of committed freight. We think that continues to happen, which also plays into the component of our timing in passing through those costs. Moving then to Slide seven about our LTL results. Net revenue for LTL increased 4.4% in the quarter on volume of 5%. Our comments there about carrier costs increasing, while we don't see the significant changes or variations in the cost of hire or the capacity environment in LTL like we do in truckload, I do think it's worth noting that we do also see a fairly balanced market and meaningful cost increases in the LTL environment.
From a competitive standpoint, we do believe it's true that there are many more 3PLs that are in the LTL channel today aggressively marketing those services. We do continue to feel that while the LTL market dynamics are different than truckload, that it too remains a fairly competitive environment. That's part of the reason why the timing of cost increases and pass-through to customers continues to remain under some pressure. Moving to Slide 8 about our intermodal results. Net revenue increased 1.3% for the quarter. As we've talked in past quarters, this is a service line where we don't have the same scale advantage, and we have not been as successful passing through cost increases or taking market share as we have been in other services.
We do feel, though, that we are very capable and do have a lot of success of adding value in the right customer situations, particularly multimodal situations where we're taking advantage of both truck and rail services and applying them where it most appropriately works with the customer. We do continue to look at moving our mix of business to ensure that we're not only adding value to the customer, but that we're managing our own margins and profitability. While we had a slight decrease in our volume, our net revenue margin actually improved as the mix of business for our intermodal business improved. Moving to Slide 9 on our global forwarding services. Slide 9 indicates the breakdown of the actual reported results for ocean, air, and customs activity.
I won't comment much on Page 9 because those large increases are generally reflective of the acquired business of Phoenix International coming into C. H. Robinson and showing those large increases. What it does show, though, is that with almost $50 million of net revenue for the quarter in our ocean business, it does show the scale that we've been able to achieve in the combined businesses for our consolidated results. As we indicated down below, we are more predominantly involved in the ocean business and, more specifically, that transpacific eastbound from China and all of Asia to North America, where, based on some public rankings, we were the number one NVO in the third quarter.
From the standpoint of our market presence and our scale, looking at the combined results is relevant on Page 9. We continue to feel good about the scale of our business and our presence in the marketplace in global forwarding. Moving to Slide 10, is where I'll have some more specific comments about the Phoenix integration and the status of our network combinations. Again, similar to the earlier pro forma numbers, what this is doing is adding the prior year Phoenix net revenue into 2012. As I mentioned earlier, we're already operating under a combined business. This is the most meaningful way to look at it. Shows a 3.8% net revenue increase for the third quarter of 2013. In addition to that, we feel very good about the investments we're making to combine the network and improving the operations and the results of the two businesses.
On the last couple of calls, I've given a more thorough update of our integration initiatives and where we're at. As you probably have seen a couple weeks from now at our Investor Day, we're also planning for a more thorough update and Q&A with Stéphane, our leader of the global forwarding business. I won't go into a lot of detail here, but we'll really sort of recap the notion that we continue to feel very positive about the acquisition of Phoenix International and our integration success for year one.
Some of the highlights of that year one integration, as I've mentioned before, the focus was really to combine the service contracts and drive the scale initiatives in year one, combine the leadership teams and the networks, and make sure that we have one combined business, establish our agent network, eliminate any duplicate agents, and make sure that we have a presence around the entire globe beyond our owned offices and retain those employees and customers. For those of you who have followed this industry, we've talked about, and everyone knows that the history of integration in larger global forwarding acquisitions has not been that successful for many companies.
It was our and my primary commitment that we weren't looking to let that happen, and we were going to stay focused on making sure that we took care of our customers, took care of our employees, and grew the business in a positive way. We feel very good about the year one success of what our network looks like today, what our leadership team is doing, and the fact that we've been able to, in a pretty challenging market environment for global forwarding services, not only retain but grow our business and set ourselves up for better success in the future. We've also mentioned, and you will hear more detail in a couple of weeks about what we have left to do.
While we feel good about identifying the process gaps and the technology functionality that we needed to change to integrate onto one platform, we still have the conversion of much of that business left to execute during 2014. While we've had some limited cross-selling initiatives and some joint accounts, we're also looking forward to being on one platform with one network and more aggressively cross-selling in the future, and also taking better advantage of some freight consolidation and routing opportunities. Then obviously squeezing the productivity over time to make sure that we continue to contribute to the bottom line in EPS as that acquisition matures as well too. We said up front and still continue to believe that it's going to be the better part of a two-year integration exercise, but feel like year one was a success, and are looking forward to the future.
Moving to slide 11, around other logistics services. Again, this represents the non-transportation or transportation management warehouse and small parcel revenues, 22.8% increase in net revenues for the quarter. This again represents another area where we continue to invest and feel good about the expanded value that we're adding to the customers, as well as the opportunity in the future to continue to add value in greater and more integrated ways. When we talk about the investments in our other logistics services, those would generally consist in the double-digit increase in technology spending that we are incurring this year, despite the fact that our net revenues are relatively flat, along with some startup and integration costs on more integrated longer-term customer relationships, that profitability for those relationships tends to improve over time.
We continue to ramp up and invest aggressively in new relationships that we think will provide a lot of value to us and our shareholders over time. Last page of my prepared comments on the sourcing results. You see a 9.5% reduction in net revenues for the quarter. As we've highlighted there were some weather issues that really impacted some of the products that we buy and sell and distribute, particularly melons and some of the other categories that we're able to add a lot of value to. We also had some challenges with some lost business in the sourcing division.
Lastly, just highlighting a positive, we do continue to see some good growth and some growth opportunities in the food service vertical, where selling and distributing fresh fruits and vegetables to restaurant chains and other food service type businesses is an area that we think we have continued growth opportunities in. With that, I will turn it over to Chad for page 13 and some commentary on our financial activities.
Thanks, John. On slide 13, we're going to cover some cash flow and balance sheet information. We have a strong operating cash flow in the second quarter of 2013, although it might not look like it comparing it to the third quarter of 2013, although it might not look like it comparing to the third quarter of 2012. 2012 third quarter is a tough comparison. Our gross revenues between quarter two of 2012 and quarter three of 2012 fell sequentially, which drove a sequential drop in our accounts receivable. That obviously had a positive impact on operating cash flow. This year, we did not experience a sequential drop in gross revenues and did not have that decline in our accounts receivable.
When you look at where it turned out for the quarter, it exceeded net income and was right in line with our benchmark of having operating cash flows match net income in most quarters. Again, although the year-to-date cash flows look low compared to last year, it is important to remember that in quarter one of this year, our operating cash flows were impacted by a $100 million tax payment related to last year's sale of T-Chek. That was basically the tax on the gain, the taxable gain, when we divested T-Chek last year. Moving on to CapEx. Our capital expenditures are within the plan we outlined earlier this year. We continue to believe we will have approximately $50 million-$55 million of CapEx, including the construction of another office building on our campus in Minnesota, which will replace a facility we are currently leasing.
We ended the quarter with $850 million of debt. As previously announced this quarter, we borrowed $500 million in a private placement transaction. The proceeds were used to enter into an accelerated share repurchase with two different banks. Moving on to slide 14, I will cover that accelerated share repurchase, as well as our other repurchase activity for the year in a little more detail. We repurchased approximately 1.2 million shares through daily share repurchase activities at an average price of $57.26 during the quarter. Year to date, excluding the accelerated share repurchase, we have returned approximately $387 million in total to our shareholders through a combination of dividends and share repurchases. We expect to continue this practice of targeting 90%-100% of our net income on average over time, return to our shareholders.
In addition to our ongoing share repurchase activity, we entered into $500 million worth of accelerated share repurchase agreements with two banks. We entered into these agreements on August 26th. Under the terms of the agreements, the banks collectively delivered approximately 6.1 million shares up front. This amount of shares represents approximately 70% of the shares expected to be delivered based on the trading price of the stock when the agreements became effective. The final number of shares acquired under these programs will be based on the average VWAP, or volume-weighted average price, less an agreed-upon discount during the duration of the program. The banks have the discretion to terminate the plans between December 11, 2013, and April 16, 2014. The net shares due will be delivered to us at the termination of the agreements. Our current share count is reduced by the 6.1 million shares.
The balance will impact our share count upon delivery. Based on the VWAP from the initiation of the program through October 31st, the two banks collectively would deliver approximately 2.4 million shares. This amount will be impacted based on the VWAP of the stock between now and the termination of the plan. We are giving you this number as an example only. Once the program is complete and the final shares are delivered, we expect the ASR transaction, net of the incremental interest expense, to be accretive by approximately $0.02 per share per quarter. However, the ASR, as John mentioned, did not impact EPS for the third quarter. This is due to the timing of the transaction being relatively late in the quarter and due to the fact that we had professional fees of approximately $600,000 related to the ASR and the debt agreements.
With that, I will turn it back to John for some closing prepared comments.
Okay. On slide 15, which is the last slide that we'll have prepared comments to, beyond that are some of the appendixes and reconciliations for anybody who wants to better understand or check the math on some of the pro forma calculations. In terms of a look ahead, the third-party logistics business and ours, there's been a couple of key metrics that have always been what has driven our success and we believe drives our competitors as well, too. If you look at the buy-sell margins or the net revenue margins in the marketplace, that is a significant driver of what's happening with our growth and our profitability.
Beyond that, if you look at the, as I mentioned earlier, the deployment of people and technology and the operating expenses and how efficient are you at generating operating income, that would be the second component of a service business like ours and looking at how you're doing. There's no question, as I laid out on the earlier slide, that our net revenue margins and our buy-sell margins in the marketplace have come under pressure the last several years. We do see that, our first bullet point is repeating what I said a quarter ago, that when we look ahead at the marketplace conditions, what we're seeing in October and what we're experiencing in our business, that it is going to be difficult for us to grow our earnings in the fourth quarter of 2013.
In addition, some of the comments I made earlier about when we look at how is our business performing and what are the choices that we're making as a routine to respond to this environment and what are we doing, trying to highlight those on page 15 here around first and foremost, continuing to go after market share gains. That has been questioned by a number of people. Why would you continue to add to your network? Why would you hire people? Why would you continue to go after market share when margins are compressing? As I laid out for you earlier, we continue to believe that we have industry-leading productivity, that the business is performing at a very high level, that it's a smart decision and a good long-term decision to continue to go after market share and grow our business.
We've always managed under the understanding that while we will do some things to optimize our margins and manage what the marketplace gives to us, there are a lot of larger supply and demand and competitive forces in the marketplace that are less in our control. We do believe that there continues to be significant long-term opportunity to add value. One of the trade-offs of the increased competition and tighter marketplace conditions are the fact that we think supply chain and transportation matters as much as ever, we continue to feel very good about the opportunities in the marketplace. Once we see some margin stabilization, we think we'll be able to improve the growth of our earnings and strengthen the value creation in the future.
When we think about how we're managing and how we continue to invest in our business, going after market share gains and continuing to sell and driving productivity initiatives, despite the fact that we have what we believe is industry-leading productivity, we have many initiatives and continue to look at the deployment of technology and the improvement of our processes to continue to make that better and sustain our leadership position from a profitability and return perspective in the industry. Our global forwarding network, I talked about how we have invested and will continue to invest in the long-term integration initiatives of technology, office network, and agent alignment to continue to make sure that we're well-positioned for the future there.
The European network, Bryan Foe, our President of Europe, will be presenting a couple of weeks from now to give a little bit more information and perspective around the offices we've opened and the opportunity that we see in Europe, both in surface transportation as well as global forwarding and the other logistics services that we're offering. Our management services, those of you who have had the chance to visit, and I mentioned earlier, the technology investment and the types of transportation management initiatives that we're working on that customers and the demand in the marketplace feels as high as ever. That's another example of a growth initiative that we are spending on that we think will continue to have very high returns and a positive impact for us in the future.
Lastly, talking about the points that Chad mentioned around utilizing our balance sheet, optimizing our capital structure, and making sure that we're exploring growth through acquisition and having the right type of balance sheet to support our growth is something that we feel is a competitive strength and that we will continue to focus on. While we're not happy with an EPS decline for the quarter, we don't think some of the comparison challenges are over, we know we've got a rough environment to continue to deal with, I really do feel the conviction to the long-term value of what we're doing. I feel like we've laid out for you why we're doing what we're doing and how we're approaching it.
There will be more information and more presentation from our senior leaders who are leading up each of those initiatives a couple of weeks from now in the Investor Day, which will also be webcast for people to listen to. With that ends the prepared comments on our deck that was sent out with the earnings release. I want to thank all of you for the good questions that were submitted. Tim has accumulated them, and we'll now move to the question and answer portion of our call this morning.
Thanks, John. As mentioned, thank you to everybody who submitted questions. We have a lot of them, so I'll do my best to keep us moving and cover as many as possible in the next 25 minutes or so. I'm going to jump right into it. The first question is for John. I'm going to try to read these questions as they were asked, just to try to make sure that we answer the questions pretty specifically. The first question, again to John, after a number of quarters of disappointing growth, do you believe there's been a structural shift in your business that means your earnings growth rate will be lower in a more permanent way?
This is a question that we have received quite a bit the last three years and will address more specifically a couple of weeks from now in our Investor Day. We do feel that there has been some changes in the marketplace, obviously, around how shippers are handling their supply chain. As we've acknowledged, and all of you have acknowledged numerous times, many of the services being much more competitive in the marketplace. I don't think all of the structural shifts are necessarily permanent. The contracting supply chains, the focus on efficiency versus growth.
I do think that while those have been here for a number of years and likely aren't going to go away in the next couple of quarters, that hopefully there will be periods of time in the future where supply chains are extending and companies are more focused on growth initiatives or looking at the marketplace different. While we will be investing in our business and we still feel that double-digit growth goals in the long term are attainable for us, we would acknowledge that there has been some changes in the marketplace over the last couple of years that have impacted our earnings growth rates and will for the future.
Okay. The next question is for Chad, and again, I'll read this verbatim here. Traditionally, CHRW has incentivized branches to grow net revenue, and for only the fifth time since 2001, we saw net revenue decline sequentially in Q3, despite a sequential increase in gross revenue, which occurred in a relatively static demand environment. Has something changed in CHRW's incentive compensation that would cause this type of behavior? Our impression was that employees see profitability metrics before booking a load. Has this changed? Is management considering other measures to get more aggressive about repricing unprofitable business?
Okay. The core financial incentives have stayed consistent within our branches, and they're all based on one measure of profitability or another. Sometimes it's net revenue, sometimes it's pre-tax, pre-bonus profits of the branch that they work in. There has been no material shift in our profit incentives. We have talked at great length in recent quarters about the impacts of the market and its impacts to our net revenue margins, primarily in truckload. However, our branches have continued to focus on adding market share for the long-term success of the company and being able to grow faster in better environments, as John highlighted just recently. All of our business is priced with the intention of it being profitable.
However, we are usually committing to move loads at a specific rate to customers, both in spot and committed business before we know the exact price we're going to pay the carrier. Obviously, this causes us to have net revenue margins different than we would have planned it. Our branches are consistently looking at their book of business and consistently pricing freight when they think it's warranted, including if we are losing money on an overall customer relationship. At times, we will lose some business based on this repricing activity.
It's important to understand that we take a longer-term view of that and look at the relationship with the customer as a whole over time and understand that part of our business model of committing to pricing to customers in advance of knowing the cost of capacity means we will lose money on loads, and we do lose money on a relatively small number of loads every day. I think with all those comments, it's also important to realize that even in this difficult environment, we haven't been able to grow our net revenues as fast as our volumes. We have seen compression in our net revenue margins as well as our operating margins, operating income as measured by operating income net revenue. I think it's also important to realize that they still are industry-leading metrics.
back to one of John's comments is we do have a very profitable business. We are managing the profitability, but we have to continue, or we believe it's best to continue to focus on expanding our market share and growing the business for the long-term shareholder value.
Okay, thanks, Chad. The next question is for John, the question is why does CHRW continue to invest in headcount to grow its truck brokerage volume when the gross margin remains under significant pressure?
As I said in my prepared comments, and all these kind of tied together, this is probably the last question we'll take under this theme, but it really is kind of the recurring theme of when you analyze C.H. Robinson and its performance for the last three years, there is no question in our minds that net revenue margin compression is the number one challenge and the number one earnings headwind and topic that we have. If you look at $9 billion or whatever our revenues are for the quarter, and more than half of that being North America truckload, and after the last three or four years, more than a 5% margin compression on that buy-sell relationship.
If you look at the margin differential and the pressure that's put on our business, that clearly, in our minds, is the foundation of why we've had a difficult time to grow our earnings. Separately, when you look at our people, our network, our value add, our service levels, our headcount, we think those metrics are pretty strong today, and we continue to drive them, and we continue to think that we can add value by taking market share, increasing our scale, and preparing ourselves for more favorable environments to grow our earnings. The question around why do we continue to add people and aggressively go after share, that's certainly a valid question that you can ask of us. I think it's profitable business. As Chad said, we know on the long term, scale is a very important thing for us.
It provides a lot of value around the growth and continuity of our team internally. I believe that if you understand that basically the entire supply side of the truck stuff reprices fairly aggressively, that if we were not aggressively going after market share and looking to add people, it's not like our static business would have remained equally profitable and that we would have had flat net revenue with flat volumes. We have to get incremental volume in this type of an environment to replace that net revenue that we lose on the current book of business where the margin compresses. While I understand it's a valid question, from our point of view, there really is not a lot of critical thinking around whether or not it makes sense to continue to go after market share in this environment.
We do believe that we're doing it pretty efficiently and profitably.
Hey, thanks, John. The next question relates to our global forwarding business. I will tackle these just because it's a couple of quick questions around some correlations, I think, to our truckload business or some of the metrics that we've shared in the past. Really, these two questions are weaved together. The first is, how much of your ocean and air capacity is accessed on a spot basis and how much on a contracted basis, and what is the typical length of the contract for ocean and air capacity? The answer there really is a little bit different for air and ocean. About half of our air freight is committed or on Blocked Space Agreements from a capacity standpoint. Within the ocean service, nearly all of our space is committed or on blocked space.
The typical contract is an annual contract with the providers there. Again, the related question, if you flip the perspective to the customer side, how much of your ocean and air business is priced to the customer on a contracted basis, and how much is on a spot market basis? The answer here is, in the air and ocean or the forwarding business, a good percentage, nearly all of our business has some level of agreement with our commitment with customers. Similar to agreements with customers in our truckload business, those agreements are typically annual agreements, and the pricing really occurs more on the customer terms. Not necessarily a January 1 through December 31 agreement, more based on customer terms there and some of the seasonality of the forwarding business.
I'm going to move on to our next question here. This question will be for Chad. The question is what drove the year-over-year acceleration in North America truckload rate per mile plus 4% in 3Q13? Truckload market pricing during 3Q13 only improved slightly for public TL carrier rate per mile and other pricing metrics. Curious as to why CHRW saw such a dramatic increase in its truckload purchase transportation costs during the quarter. Was mix or Hours of Service change a factor in driving the pricing up significantly?
Thanks, Tim. I think John covered this pretty well in his prepared remarks, but I'll give some answers or some additional color. When you look at our mix of business and how it is changing, one of the biggest things we're seeing is our average length of haul continues to decline. That being said, we still have, on average, a pretty long length of haul. When you look at our overall rate per mile on our purchase transportation increasing faster than the market as a whole, part of that is that shift towards us growing in the shorter haul. Shorter haul business, on an average, has a higher rate per mile than long haul business. Our volume in our short haul business in North America, and short haul being defined as less than 250 loads, was up approximately 15% during the quarter.
That increase of that mix is a significant contributor to our above overall market rate per mile increase. On the other end of the spectrum, we still do have a significant amount of long-haul truckload freight. Hours of Service, we believe, had a disproportionate impact on that long-haul freight because of the multi-day, sometimes three-day, four-day shipment times of that freight, and the new rules have definitely impacted the efficiency of the longer-haul carriers, or at least the longer-haul loads, disproportionately to the marketplace as a whole. The publicly held truckload carriers tend to have at least proportionately less long-haul freight than we do and have a significantly shorter average length of haul than we do.
Okay. Thanks, Chad. The next question, also in the truckload area. This is for John. CHRW saw improved North America truckload volume growth year-over-year during Q3 2013. What were your factors in accelerated growth? Were there more opportunities in the market given Hours of Service rule change, or were there other drivers of accelerated North America truckload volume?
I probably danced around this question a little bit already, but in terms of going after that North America market share and how we were successful at growing our volume, there's no question that volume activity does bounce around, and comps can have a little bit to do with that in terms of our growth rate. I believe that we went after market share in the third quarter very similarly to how we always do, which is adding people to the network, aggressively selling, and going out in the marketplace. I don't think there was anything particularly unusual or different. We did, for the first time, during parts of the quarter, see some of the metrics that we track around route guide depth and supply and demand relationship in the marketplace.
We did see a very minor amount of tightening during the quarter, which could have contributed to some incremental spot market or freight opportunities. It's not anything that begins a trend, and it's bounced around a lot during the quarter. It could be, as many of us have discussed, more from contraction on the supply side rather than absolute freight demand in the marketplace. There could have been some minor tightening during portions of the quarter that helped accelerate the volume growth.
Okay. Thanks, John. The next question, again, to John. What are your thoughts on the direction of truckload net revenue margins? Do you think we've hit the bottom, or are competitive dynamics such that you think there's more pressure ahead?
I think this has probably been the core source of frustration, both internally and externally. I know for those of you who are trying to understand and forecast our earnings, none of us knows when truckload margins will hit bottom. I know there's been a number of times over the last couple of years where we've hoped we were there, and we hope we're there again now. We've tried to be candid about the fact that even when we do hit a bottom on the margin compression, that there's probably some lingering comparisons that will continue for a period of time. It's hard to say. As I outlined earlier, there's shippers' attitudes. There's fundamental changes in the supply chain.
There's competitive pressures, both from other 3PLs and from the fact that carriers themselves are more reluctant to add equipment and more inclined to try to subcontract or broker equipment themselves as well, too. Those dynamics do create and have obviously created some interesting challenges for us. If you look at the magnitude of margin compression that's already occurred in the last three or four years and what it takes to operate a business, we're hoping that we're getting to the bottom of the cycle. We've always been very open with the fact that it changes daily, and it's very difficult to forecast or predict. If we knew, we would share it with you, but we will continue to react to the marketplace and adjust our business the best we can.
Okay. Thanks, John. The next question I will respond to. The question is: what % of your trucking business is moved by large carriers with 1,000 truck fleets or larger? The simple answer to that is about 5% of our year-to-date truckload shipments through September 30th are with large carriers with greater than 1,000 trucks. That's a pretty consistent number for us over our historical performance as well. The next question transitions into a question around our sourcing business. This is for Chad, and the question is: you noted in your earnings release a loss of commodity business with a large customer. Can you speak to what caused the loss, and what are your thoughts for this segment going forward?
Sure. We did mention that there was two primary or the two biggest drivers of the net revenue decline were the loss of a couple of commodities with one of our large customers. In that case, the customer has gone direct on a couple different commodities, and that impact, this was the first quarter of the implementation, so it probably wasn't fully implemented at the beginning of the quarter. That impact should be there primarily for the next three quarters, with maybe a little bit in next year's third quarter, since it happened during the quarter. In addition to that, there were the weather impacts that we talked about. Those should be, I can't call them one time because there's going to be other bad weather quarters, I'm sure, in the future, but they are a pretty infrequent thing that you wouldn't expect to repeat themselves.
Okay, thanks, Chad. Moving on to a question around the LTL business, and this question is for John. Clarification on commentary around LTL marketing being competitive. Other LTL players have been suggesting that pricing is pretty rational in this segment of the market. Does your net revenue margin pressure mean that you're having to pay more than expected for access to capacity? Are there some other considerations we may be missing?
When we look at the LTL service line in comparison to truckload, in particular in North America, which is where the bulk of the revenue comes from right now, while we rely on close to 50,000 carriers for all of our capacity, and many of them being much smaller, as Tim answered in the earlier comment. In the LTL world, just based upon the industry landscape, there are a couple of hundred LTL carriers that make up in the high 90% of the capacity that is available in North America and what we would rely on. The pricing and the competitive dynamics are very different in the LTL world. We do feel like we have consistent and good access to those relationships and that capacity that's out there.
As I mentioned earlier, the LTL area is something where the routing and the tendering and the processes and the technology have a significant impact on what is the most efficient answer for any given customer or any given shipment out there. We do continue. I think this is probably the area where technology and 3PL competitors continue to improve and increase. While we feel very confident about what we think is an industry-leading position and ability to add value, we do see more competitive pressures in the LTL arena as well too. Really, again, the origin of the comment in the deck was more around making the point that when we think about margin compression and the confirmation that some of the marketplace conditions really are about a different approach from shippers to their transportation spend and how they're thinking about their logistics.
That, for us, LTL gets included in that margin compression challenge.
Thanks, John. The next question is for the intermodal service line, and this question is for Chad. What is your general intermodal strategy? How much are you exposed to international versus domestic intermodal? Why are you seeing volume declines when the intermodal market is growing? How many of your own containers do you now have, and what is the plan going forward?
Okay. Our intermodal strategy is almost entirely focused on domestic shipments, so 53-foot boxes versus the inland portion of ocean containers. Most of the larger steamship lines manage those inland ocean container movements on their own. In fact, even when we have, for example, L.A. to Chicago ocean container continuation on the rail, we're usually relying on the steamship line to provide that repositioning service. Occasionally, we do help the steamship lines by loading domestic freight into 40-foot containers to help them reposition them back to the ports. Primarily, we're focusing on business that is dedicated domestic intermodal and focusing on looking for opportunities to convert truckload freight to intermodal, both on a permanent basis and on more of a transactional market-by-market basis. We currently own 1,000, or I should correct myself, 998 containers. We've had two destroyed.
As far as how many containers we have in the future, we're continuously assessing our needs on our capacity in that arena. We do not currently have any outstanding plans to order any containers, but all of that could shift in the future.
Okay. Thanks, Chad. The next question, again, is for Chad. It is there any reason why CHRW keeps so much cash on its balance sheet, even though the company now has access to a credit revolver? Have management's priorities for deploying excess cash changed?
That is a good question and one that I understand why people could be confused by. We don't have immediate access to all the cash on our balance sheet. Over half of that cash that's on the September balance sheet is in foreign bank accounts. In some cases, there's foreign currency controls on releasing that money, and in some cases, there's tax consequences into repatriating net earnings. That being said, we are looking at all of our foreign cash balances and have been and will continue to look for ways to minimize the amount of cash overseas. In addition to that, the majority of the cash that is on the balance sheet is made up of recent collections. When we receive checks from our customers, we are not able to invest and/or pay back debt with that money until the corresponding bank has funded the money to our bank.
Basically, it's the float on deposits plus the cash that's tied up in foreign bank accounts.
Okay. Thank you. The next question is for John, and it is, how much would you be willing to use your balance sheet to engage in M&A activity? Is there a certain leverage target beyond which you are not comfortable?
I think, as I talked earlier about we are using our balance sheet and making sure that we try to create value and improve our earnings going forward. What I like about this question, and I think is relevant, is that we have always and still today, from an M&A perspective, considered any opportunity that we think can create value or improve Robinson's position in the marketplace, and that's exactly the attitude that we would have going forward. I don't believe there's ever been a financial limitation, and I don't think there will be in the future in terms of the type of M&A activity that we would explore. While we are taking on some leverage, we do not intend to ever become a highly leveraged company or to have an inordinate amount of debt.
It is our plan for the foreseeable future that as we explore M&A opportunities, that we will have all the financial freedom that we need to do whatever makes sense, and that we'll continue to use dividends and share repurchases for the optimization of the capital structure. In our business, as I talked earlier around global forwarding and kind of the market share gains that we're going after, it's incredibly important that you have consistent and good service experiences with your customers and that you don't disrupt things by or destroy your culture by integrating too fast or too aggressively and inappropriately. The real throttle on our acquisition activity is how fast we think we can integrate and assimilate businesses into our culture without disrupting the service levels to our customers.
Yeah, as far as a little more specifics on the debt leverage measure, the question actually said EBITDA or total debt to EBITDA. Today, we're a little bit over one. We're going to use our ongoing share repurchase activities to try to manage the business to somewhere between one and one and a half leverage ratio on that measure. As far as where would we limit it, today, we feel like we would limit it at about two and a half times, which if we were rated, we're not rated today, but if we were rated, we think that would maintain a BBB or better rating, which is kind of where we're drawing the line. We want to stay investment grade. We need financial viability in the marketplace. It's very important to our customers and our carriers.
Based on that, if we needed more debt for an acquisition, we have approximately $1 billion of capacity today. Obviously, we could do things with equity if we exceeded that need in an acquisition opportunity.
Okay. Thank you, John and Chad. Unfortunately, we're out of time. We apologize that we couldn't get to all of the questions today. I want to thank you for participating in our third quarter 2013 conference call. This call will be available for replay in the investor relations section of the C. H. Robinson website at www.chrobinson.com. It'll also be available by dialing 1-800-406-7325 and entering the passcode 4642488 pound. The replay will be available a bit later on this morning. If you have additional questions, please feel free to call me, Tim Gagnon, at 952-683-5007 or by email at tim.gagnon@chrobinson.com. Thank you.